Yen Has 10% Further To Fall.

OK…This could be the end of me…However, I feel it is worth the effort. Since I posted Nippon soon to Nip Off  and A Yen For Your Faults (Nov 2013) which recommended option trades to short the Yen, the currency has faltered. However, my first recommendation to sell the Yen was in Be Prepared For A Wedgefest  (Oct 2012) when it stood at $77.50…

Following the announcement of a significant increase in money printing (QE) by the Japanese authorities this week, I am now convinced more than ever that the Yen has further to fall. My best guess is for it to retrace to $123.5 which would of course really put the cat among the pigeons. The previous blogs went into detail of the debt burden but lets look at few stats to update. The Central Bank has now cut its growth forecast again, this time by 50% to 0.5%. The QE programme is now increased to Yen80 trillion or 16% of GDP where as the US never exceeded 5.5%. The asset mix being purchased has been altered. Purchases of local bonds will only make up 35% of the enlarged intervention vs 60%. Local equities will rise to 25% vs 12% whilst overseas assets are included at 25% equities and 15% bonds.

Whilst the government continues to spend wildly the consumer is still not convinced. Average household spending fell an annual 5.6% in September which is not surprising when incomes fell 6% year on year. With the nations debt to GDP ratio nearing 250% its once envied savings ratio is falling rapidly. The demographic time bomb has exploded and this can only maintain that decline. The weak Yen has seen food prices rise rapidly along with fuel costs. Remember Japan has little if no natural energy resources. If I am right and the Yen continues lower, their will be two main consequences. Continued consumer weakness due to imported inflation and most importantly GLOBAL DEFLATION EXPORT. Yes…I know, a common theme of mine.

Its worth noting which countries are the winners and losers in this potential move. Winners (Biggest net importers from Japan)…US, HK, Sth Korea, Singapore and Thailand. Losers (ex energy)…China, Australia, Western Europe. These represent the biggest net exporters too Japan. Of course, the winners might not be happy about this surge of additional low priced competition. Given that Japan will likely ramp up heavy industry exports, its more than likely that (import) duties may well become a hot topic. The machinery sector will become very price driven, especially given the downdraft of mining exploration budgets, and big producers in the US (eg Joy Global) and the Swedish/Finnish economies in general, will suffer. I have been very negative about Sweden this year and that has been confirmed by its currency slump to a six year low.

Its difficult to see Japanese bonds being a sort after investment when they yield virtually nothing. This is not helped by the state pension fund reducing its portfolio exposure in domestic bonds from 60% to 35%. I must be the only person to think that  Japanese Government Bonds  are worth not much more than the paper they are printed on. Perhaps they could put them on a roll with perforations every six inches or so…just in case

 

NEXT BLOG…WHY! Since the birth of QE has the number of Billionaires doubled but the disposable income for the majority (developed world) , slipped back to levels not seen since the turn of the century. Indeed, figures out this week highlight the number of people in Italy dependant on food aid has doubled to 4 million…WELL FUNKING DONE CENTRAL BONKERS…

Then I will review companies like BHP and Volvo which I havhttp://www.redbridge.ukipbranch.org/e written extensively about..It might be time to think about Steel stocks…Crazy eh!

DONT MISS MY PICTURE ON THIS SITE…http://www.redbridge.ukipbranch.org/

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Saturday, November 1st, 2014 China, Consumer Debt, Debt, GDP, Japan, National Debt, Predictions, Steel, USD, Yen

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